Representative example: a R50 000 loan at an interest rate of 24.5% per annum plus a once-off initiation fee of R1 207.50 (added to the loan amount in this example) and a monthly admin fee of R69.00, over 72 months would have a total cost of R 103 155.57.
The maximum annual interest rate including fees is 27.5%. Repayment terms can range from 1 - 72 months.
MyLoan is an online loan broker and not a lender. Our service is free and we work with NCR licensed lenders in South Africa. Interest rates charged by lenders can start as low as 20% APR, including an initiation and service fee determined by the lender. The interest rate offered depends on the applicants’ credit score and other factors at the lenders’ discretion.
Are you drowning in debt with too many loans to pay? You can simplify your finances by consolidating your debt into a single, easy-to-manage account. In addition, your monthly repayment of the qualifying credit will be lower after you consolidate your debt.
What is a debt consolidation loan and how does it work?
A debt consolidation loan is the process of combining all of your debts into a single loan. It's a method to manage your debts with one simple payment and one administration charge, potentially freeing up some of the cash used for your previous loan repayment.
These loans are given out according to the National Credit Act (NCA) rules, which ensure that lending occurs to people who can afford the monthly payments.
The main advantages of such a loan are that you only have one creditor (the financial institution that provided you with the debt consolidation loan) and that repayments usually get made at a lower interest rate over a more controllable period. In addition, you do not have to pay multiple service fees.
What are the options when consolidating loans?
You have two options for debt consolidation. You must first meet specific eligibility standards, just like any other loan. The lending institution must be assured that you have the ability to repay the debt consolidation loan. Then, when the loan is granted, the agreed-upon amount is credited to your bank account, and you are responsible for paying off your debts.
Other lending institutions will take a different approach, requiring you to supply them with creditor settlement letters. The lender then negotiates directly with your creditors to settle your debts, advise you how much your bills will get settled for, and handle the process. You are afterwards responsible for not re-opening or continuing to use these credit accounts.
In many cases, the debt consolidation lender will handle the settlement of loans on your behalf to make sure the loan is appropriately used. However, whatever option you use, the lender should provide you with a manageable debt consolidation loan repayment plan.
What can go wrong with debt consolidation loans?
Debt consolidation might not be the best solution if you don't have a good handle on your finances. Unreformed irrational spenders may struggle to pay off the previous loan and end up using the debt consolidation loan for something entirely different.
Borrowers can easily find themselves buried deeper in debt in a short period if the institution providing the loan does not settle outstanding debts on the borrower's behalf.
While debt consolidation loans do not eliminate your debt quickly, they may make it easier to manage your payments. In addition, because you're just paying interest on one loan rather than several, the total amount you pay in the long run is usually lower.
Benefits of a debt consolidation loan
There are several benefits to having a consolidation loan, including:
- Lower monthly repayments due to one lower interest rate
- One single fixed monthly payment, service fee, and credit protection plan lets you free up cash
- You'll be less likely to forget to pay your bill each month.
- Save money with fewer bank charges
- Simplifies your finances
- Very helpful in tough economic times
- Improves your credit score over time
Will debt consolidation affect my credit score?
If you skip payments or pay your bills, such as your credit card late, it will impact your credit score negatively, making it harder for you to get approved for loans in the future. Having a bad credit record can also affect your professional life negatively, making it harder for you to find a job.
Your credit profile gets reviewed to determine how big of a loan you qualify for, which gets done on a case-by-case basis. By consolidating your debt, you can improve your credit score as you're likely not to miss the single loan repayment and the monthly repayment amount is relatively more affordable.
How to choose the best debt consolidation loan
The amount of debt consolidation loans to choose from in South Africa can make you feel confused and overwhelmed. Additionally, when you're feeling stressed because of your debt, it is easier to fall prey to a lender who isn't a registered credit provider. With proper research, you can find the right consolidation loan to solve your debt problem.
Here are some things that you should look out for when choosing a consolidation loan:
Consumers wishing to combine debt should pay attention to the interest rate offered by a lender. The new debt consolidation loan's interest rate should be lower on average than the consumer's present loans interest rates. Borrowers shouldn't just look for a lower repayment for each month because it isn't the only sign of a successful debt consolidation loan. The repayment term might just be longer.
The total cost of the consolidation loan should be lower than the combined total cost of all your current loans. If the consolidation costs the same or more, then it isn't necessarily worth the effort. Usually, the terms consolidation loan offer is clearly favourable for the borrower.
Fees and other costs
There are typically upfront charges, fees, or other costs to get the loan disbursed. This depends on the lender. Occasionally, the lender will offer to add these fees to the loan sum. Borrowers who do not have the funds to pay these costs upfront may find this to be an appealing offer. However, consumers should be aware that as long as they opt to finance these costs, they will be charged interest for the length of the loan.
Consumers should be aware of loans with more extended periods. Even though the instalments are cheaper, you may end up paying more in the long run. Any debt consolidation loan should have the purpose of paying off debt as quickly and cheaply as possible.
Only lend with accredited financial institutions that are under the National Credit Act (NCA) of 2005, and the South African National Credit Regulator (NCR) regulates loans, making sure you select a trustworthy debt consolidation firm that follows the NCR's guidelines.
How to apply for a debt consolidation loan
Applying for a debt consolidation loan can be daunting, but most lenders require the same documents from you when you apply.
If you meet the criteria to apply for a loan, you will need the following information ready:
- You must be at least 18 years old or older
- Your last 3 months bank statements or payslips
- A copy of your South African ID or driver's license
- Proof of your residential address
- You need to prove you're employed for at least 6 months
- You need a good credit record
- Debt settlement letters from each of the institutions you have accounts with
- Some lenders will require you to be earning a minimum monthly income
Using MyLoan.co.za helps you save time by directly connecting you with lenders. All you need to do is fill in one application and multiple lenders will provide a personal loan offer to you. Select the most appropriate offer and get the loan disbursed in moments.